Northrop Grumman Corp., the world’s largest warship builder, said second-quarter profit fell 20 percent as the company recorded higher costs on ship construction and pensions.

Northrup has operations in Rolling Meadows.

Net income fell to $394 million, or $1.21 a share, from $495 million, or $1.44, a year earlier, the Los Angeles-based company said in a statement today. Sales rose 3.8 percent to $8.96 billion.

Rising pension expenses, precipitated by declining returns on fund assets such as stocks, erased the benefit of increased revenue from defense electronics. Delays and higher costs on ships at the company’s yards in Mississippi and Louisiana also have been a “sore point” with investors, said Joseph Nadol, a New York-based analyst with JPMorgan Chase & Co.

“Northrop has struggled with its Gulf Coast shipyards since Hurricane Katrina hit nearly four years ago, and several efforts to improve profitability since then have failed to gain traction,” Nadol wrote in a report yesterday. He cut his rating on the shares to “neutral” from “overweight.” “We believe the outlook for shipbuilding has deteriorated further in recent months and have concerns about further charges.”

The average estimate of 16 analysts surveyed by Bloomberg was for earnings, excluding some items, of $1.29 a share. Analysts projected sales of $8.69 billion. Excluding a 21-cent- a-share charge for cost growth on ship programs in the quarter, profit would have been $1.42.

Legal Settlement

Results for the quarter included a gain of $64 million, or 13 cents a share, from a legal settlement Northrop announced in April. Northrop agreed to the largest whistleblower settlement against a defense contractor, for $325 million, to resolve claims on satellite parts the government deemed defective. The parts were made by TRW Inc. before Northrop acquired the company in 2002.

That settlement was offset by resolution for an equal value of Northrop’s suit against the government to recover costs on a canceled cruise-missile program. Because the cases canceled each other out, Northrop recorded a gain by reversing the reserve it had set up for the whistleblower case. On April 22, Northrop estimated the pretax gain would be $60 million to $70 million.

Northrop rose 2 cents to $47.13 in New York Stock Exchange composite trading yesterday. The shares have dropped 29 percent in the past year.

Northrop is the Pentagon’s third-largest supplier after Lockheed Martin Corp., and Boeing Co. Lockheed this week said second-quarter profit fell 17 percent to $734 million because of rising pension costs. Boeing yesterday said profit gained 17 percent to $998 million as it shipped more Apache helicopters and fighter jets.

Kudos to Northrop Grumman Shipbuilding for setting an example for how seriously and appropriately to handle inspectors who rollerstamp inspections without actually doing the inspections.

An inspector was turned in by another inspector for such rollerstamping of weld inspections off on military ships, including extra-critical SUBSAFE welds on submarines. Contrary to the way such fraud is handled at Boeing on commercial and military aircraft platforms based on Boeing commercial aircraft, Northrop Grumman immediately launched a real investigation (as opposed to intentionally ineffective Boeing ethics/Legal/OIG investigations) into the inspector’s fraud, including re-inspection of every weld the inspector had rollerstamped off as being done and OK when they were never actually done.

They disclosed the fraud to the government, fired the inspector, and otherwise handled the incident completely appropriately–in direct opposition to how Boeing handled my report of massive rollerstamping at Boeing to Boeing’s Chief Counsel at Boeing’s Chicago Headquarters.

Northrop Grumman is obviously a company that takes integrity and its responsibilities to protect our brave military personnel’s lives seriously.

Too bad Boeing has no such integrity, as demonstrated by how they intentionally mishandled the report I submitted to their Chief Counsel in the good faith that it would be actually be investigated and the fraud documented within it ended, and how they retaliated against the inspector who reported the fraud to them–me. Contrary to such Boeing modus operandi, Northrop Grumman investigated and ended the fraud one of its inspectors reported to them–they didn’t do as Boeing did–“killing the messenger,” then continuing the fraud.

Nice to know there are companies of integrity out there that take their responsibilities to the warfighter and the public seriously. Perhaps their management’s integrity will be rewarded as it should be–with more business for their company.

As much as I love the hypothetical concept of an uncorrupted Boeing and the many non-addled employees that work there, feeding the the cancer of corrupt Boeing management cannot be justified, especially when there are companies out there with managements of integrity that want the work. Such a company could hire the good Boeing workers over if they are given the contracts instead, leaving corrupt Boeing management and their sycophants in corruption to whither and go away. That may be the only way to stem such Boeing management corruption at this point–a managment that has demonstrated that it will not “let go” of the company until it has died as a consequence of their corruption and incompetence.

But, Boeing’s Chief Counsel’s actions to cover up the fraud documented in my report and to instead show up at my workplace to personally direct the retaliation against me is understandable, if you think like a criminal would.

The inspection fraud at Boeing was an intentional creation of corrupt Boeing management to take shortcuts and increase profitability and efficiency at the expense of passenger, crew, and military personnel safety, whereas, at Northrop Grumman, it was one rogue inspector.

Rollerstamping inspectors at Boeing are par for the course, as that is what Boeing management wants them to do. Been there, witnessed/experienced what happens to inspectors who refuse to rollerstamp at the direction and expectation of corrupt Boeing management.

So, if Boeing’s Chief Counsel had actually decided to investigate as Northrop Grumman did instead of covering it up, the investigation would have implicated many levels of Boeing management that had directed the fraud–not just a few rogue inspectors.

Because rollerstamping has for so long been a part of the business plan, ending it would have had 1997 style implications for Boeing’s production lines, and obviously, it was much easier for them to retaliate against this whistlblower than ending the fraud and implicating themselves in the process.

Doing so would have also threatened Boeing’s corrupt relationship with FAA management it has cultivated for years, making Boeing actually have to certify its aircraft were safe, rather than just going through the motions with complicit FAA management. Boeing’s undeserved delegations by corrupt FAA management would also have ended, ominously for the 787, which is already two years late.

I am proud that I have dealt with Northrop Grumman, both on the B-2 program where I worked for them through Boeing’s subcontract, and via my warning their CEO, Ronald D. Sugar, of Boeing’s theft of their B-2 technology for use in their commercial programs in a letter I faxed to him on 12-14-06.

Working for a corrupt companies’ management, as I did for many years at Boeing, makes you envious of the employees who work for the uncorrupted companies out there, like Northrop Grumman, whose management ensures a quality system of integrity no matter what the cost, whereas corrupt Boeing management and its Chief Counsel ensure the opposite, precisely to save costs and increase efficiency by consciously engaging in such fraud, on a truly massive scale.

Obviously, in Boeing management’s twisted thinking, a few rollerstamped required inspections make a little money, and massive amounts of rollerstamping will therefore make massive amounts of money.

Thankfully for the warfighter, that is not Northrop Grumman management’s philosophy.

What follows is the article about the rogue inspector, and how a truly ethical company handles rollerstamping reported to it (of course, Boeing management already knew of the rollerstamping I reported to it, as it was done at their direction):

More than 10,000 welded joints on at least eight submarines and a new aircraft carrier might need to be reinspected after the discovery by Northrop Grumman Shipbuilding that one of its inspectors had falsified inspection reports.

According to an internal report obtained by Navy Times, the issue came to light May 14, when a welding inspector at the company’s Newport News, Va., shipyard told a supervisor that a fellow inspector was initialing welds as “OK” without performing the inspections. Confronted by the supervisor, the offending inspector admitted to falsifying three weld inspections, all that same day.

Company officials rapidly began an internal investigation and notified the Navy’s supervisor of shipbuilding of the situation, according to the report. On May 20, the Naval Criminal Investigative Service began its own investigation.

Northrop Grumman declined to reveal the employee’s name, citing the ongoing personnel investigation. A company official did say May 28 that the employee initially had been suspended, then fired.

According to the report, a quick company review of the inspector’s work showed that 12 other joints inspected by the employee that evening were satisfactory. But the ramifications of the falsified inspections rapidly grew beyond a single night’s work.

“We have to go back and check everything this guy has ever touched,” said one industrial source.

The employee had been certified to perform inspections in June 2005 and, according to the report, a review of the shipyard’s welding database showed that in the ensuing four years he inspected and signed off on more than 10,000 structural welding joints on at least nine ships.

Company officials said May 27 that the investigation of the employee’s work could mean that all the joints would need reinspection or re-evaluation.

3 ships in service
According to the report, the ships worked on by the inspector included the Virginia-class nuclear attack submarines North Carolina, New Hampshire, New Mexico, Missouri, California, Mississippi, Minnesota and John Warner, and the aircraft carrier George H.W. Bush. Bush, North Carolina and New Hampshire are in service; the other subs are in various states of construction at Newport News and at the General Dynamics shipyards in Groton, Conn., and Quonset, R.I.

The two shipbuilders share equally in building the submarines. Each shipyard builds specific sections of the submarines and transports the sections to the other yard. The shipbuilders alternate in assembling the hulls.

The inspector performed most of his work on the New Mexico (2,133 welds inspected), Missouri (3,169), California (2,002) and Mississippi (2,177). The employee inspected only 23 welds on New Hampshire and two on North Carolina.

A little more than 10 percent of the submarine welds were hull integrity, or SUBSAFE, joints involving critical parts.

The inspector also performed 229 piping joint inspections on submarines.

There are many thousands of welds on each 7,800-ton submarine — more then 300,000, according to an Electric Boat Best Manufacturing Practices Web site.

But making sure that welding work is done correctly can be a matter of life and death.

“People take this really, really seriously,” said one industry source. “Why? Because people don’t want another Thresher. Nobody takes a chance.”

The submarine Thresher sank in April 1963 when it was forced to dive below its crush depth and the hull imploded. All 129 men aboard the sub perished.

“The quality of our work is something we take very seriously,” Northrop spokeswoman Margaret Mitchell-Jones said in a May 28 statement to Navy Times.

Previous problems
Newport News is still smarting from a welding filler issue that arose in fall 2007. Shipyard workers had used the wrong type of welding filler material on many pipe welds, and the company and the Navy were forced to re-examine a number of submarines, aircraft carriers and surface ships built or repaired at the shipyard. Northrop changed a number of workshop practices as a result.

Both the Navy and Northrop Grumman emphasize that there is no relation between the weld filler issue and the latest problem with the inspector.

Northrop Grumman has developed an inspection plan of the offending inspector’s work that will focus on hull integrity and SUBSAFE joints as a priority, followed by non-SUBSAFE joints, according to the internal report.

The nature of the NCIS investigation is unclear.

“I can confirm that NCIS is investigating allegations made against a weld inspector, but I cannot get into case specifics,” NCIS spokesman Ed Buice wrote in a May 28 e-mail to Navy Times. “NCIS does not comment on the details of ongoing investigations.”

There is no peace to be found in the area of government contracting.The latest flap over the refueling tanker contract just won’t end.After rival Northrop-Grumman was awarded the contract in what Boeing earlier said was a fair competition, (when they thought they had it in the bag), suddenly blew up amid cries of foul play by Boeing, once it was announced Northrop-Grumman had been awarded the contract.Boeing has pulled in many political favors and quid pro quo favors it appears on this one, if one can judge anything by the fury exploding in rallies and protests attended conspicuously by our elected officials in Congress, (Senator Patty Murray-WA, for instance) many of whom are notorious for their use of large and numerous defense contractor campaign donations.

Boeing has managed, despite the existence of currently open criminal investigations into matters concerning contracts won by Boeing in the past, to rally this kind of support to maintain their claim ofautomatic right to own the tanker contract.It makes one wonder about our elected government officials when criminal cases being investigated against defense contractors are left open, not allowed to be completed and prosecuted, apparently with Congress’s blessing, and yet new contracts are blindly awarded to the offending defense contractors.

What follows are links to a couple of articles regarding Congress’s attempts to pass new bills which these articles contend would steer the tanker contracts to The Boeing Company.The first article, “New bills steer tanker to Boeing” (Sean Reilly, Friday, June 27, 2008) describes an attempt by Kansas politicians to push through a bill which would pressure the Pentagon to take the tanker contract away from Northrop-Grumman and give it to Boeing or else the Pentagon would have to rebid the contract with an added load of new conditions and red tape.-GFS

Mobile Press-Register

The second article “Pro-Boeing bill blocked by Sessions” (Sean Reilly, Saturday, June 28, 2008) describes the efforts by Senator Jeff Sessions (AL) to block this bill.Sessions said he put a “hold” on the bill in order to give the Air Force more time to “develop a way forward that serves the military’s best interest.”

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GFS

This blog is about whistleblowers and the conditions and situations that happen in their lives to create their whistleblower status. This blog is intended to inform, share, and support whistleblowers and those who support them.